Long known as a hard-charging maverick opposed to big government, TCF Financial Corp. chief executive Bill Cooper has finally found a home among like-minded cowboys.
South Dakota -- where cows outnumber people by more than two to one -- will soon become the new legal home of TCF National Bank, a subsidiary of Wayzata-based TCF Financial, the state's third-largest bank by deposits. Pending regulatory approval, the bank will move its headquarters to Sioux Falls, S.D., by April 1.
The move won't mean a loss of jobs in Wayzata, where TCF will keep a large corporate office. But it will enable Cooper and his bank to take advantage of South Dakota's low taxes and lenient lending rules. The state has no corporate income tax; no cap on interest rates for loans; fewer fees on mortgages; and a legislature that has long been pro-business.
It's one reason why the return addresses on many credit card bills are in Sioux Falls. Citibank moved its credit card business to Sioux Falls in 1982, and Wells Fargo consolidated its charters in the state in 2004.
"Cows don't make deposits," said Tony Plath, a finance professor at the University of North Carolina Charlotte. "This is about shopping for the state with as little regulation as possible."
For its part, TCF insists it is not trying to avoid Minnesota taxes or charge punitive interest rates. However, by moving its legal headquarters to South Dakota, the bank can stick to one "more transparent" set of rules for its entire 448-bank branch network, which spans eight states, said spokesman Jason Korstange. Currently, the bank operates under separate rules for each state.
"This is not a tax play at all," Korstange said. "The taxes we pay in Minnesota we will continue to pay in Minnesota."
Yet a large portion of TCF's lending portfolio consists of consumer loans, and South Dakota is known for its lax lending rules. In the early 1980s, it became the first state in the nation to repeal its usury law (thus attracting Citibank), meaning companies can charge interest rates of 30 percent or more without penalty. In Minnesota, interest rates are capped at 8 percent, except for credit card companies.
While there is no corporate income tax in South Dakota, banks do pay a franchise tax of 6 percent on the profits they earn in the state. But since TCF doesn't have any branches in the state (it will open its first one in Sioux Falls on March 16), it's unlikely that TCF will pay much in taxes there.
And a nationwide movement to protect borrowers from predatory mortgages largely skipped over South Dakota. Earlier this decade, more than 30 states passed rules to limit fees on mortgage loans. Unlike Minnesota banks, companies headquartered in South Dakota can charge prepayment penalties, a fee charged for paying off a mortgage early.
Curtis Everson, president of the South Dakota Bankers Association, acknowledged that "it's probably not the balmy weather" bringing TCF to Sioux Falls, noting that the state's pro-business climate has played a big role in drawing banks and credit card companies there.
"In a state like this, a business leader can pick up the phone and call the governor or the majority leader in the Senate," Everson said. "We're not big, but we're approachable."
Chris Serres • 612-673-4308